Estate Planning for Parents of Special Needs Kids

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Estate Planning is important for all families.

However, it is especially critical for families with one or more children with special needs.  Without proper planning, valuable government resources may be jeopardized, or worse, lost forever.

California Small Estate Procedure Extended to Real Property Less than $150,000

 Petition to Determine Succession to Real Property in California – Ainer Fraker (800) 775-7612 – may replace the full probate process for estates less than $150,000.

In our prior posts, we discussed why Avoiding Probate is an excellent idea.

We also discussed how certain Assets Not Subject to Probate can avoid the Probate process, in certain circumstances.

An earlier post discussed the California Small Estate Affidavit procedure, whereby personal property assets less than $150,000 could be disposed of without court supervision.

As of January 1, 2012, the California Probate Code was amended to include real estate less than $150,000 in the California Small Estate process.  This new rule applies retroactively to all Estates filed after January 1, 2012, no matter when the Decedent died.

California Probate Code Section 13150 et seq. allows for a Petition to Determine Succession to Real Property (and Personal Property) for estates of $150,000 or less.

Unlike the California Small Estate Affidavit Procedure, listed in California Probate Code Section 13100 – which is an affidavit-based process that is entirely free of court supervision, the process for Real Estate enumerated in this Section does require filing a Petition with the Probate Court.

However, the process described in California Probate Code Section 13150 et seq. is NOT a full probate, and is far less expensive and usually far quicker than a full probate.

Contact an Attorney with Ainer and Fraker today to discuss the Probate Code requirements for the Petition to Determine Succession to Real Property in California.

 

Benefits of a Charitable Remainder Trust

The Charitable Remainder Trust is one of the most common tax planning techniques we use with clients here at Ainer & Fraker, LLP.

In earlier posts, we talked about the Technical Requirements of a Charitable Remainder Trust, so now let’s look at three of the key benefits to the client of a Charitable Remainder Trust including:

1. Immediate Income Tax Deduction for Amounts Passing to Charity

2. Deferral of Capital Gains Taxation until Income flows to the Beneficiary

3. Removal of Assets from your Taxable Estate for Federal Estate Tax purposes, for amounts passing to Charity

We will examine each of these in a subsequent post, so click on a link above to follow the topic you are interested in learning more about.

10 Ways to Lawsuit-Proof Your Estate #10

FORBES Magazine online blog, The Best Revenge – by Ashlea Ebeling, has an excellent article called 10 Ways to Lawsuit Proof Your Estate that covers a lot of the advice that we at Ainer & Fraker, LLP give to our clients. Please read the entire article by clicking on the following link: 10 Ways to Lawsuit-Proof Your Estate. In our final installment, we’ll examine Part 10 – Spell out any Disinheritance

“If you’re disinheriting a son, spell it out in your will, making it clear it’s intentional. But don’t give a reason for disinheriting a child that might be challenged, particularly one a court might decide was against “public policy”. (For example, I am disinheriting junior unless he divorces his wife.) ” ~ Ashlea Ebeling, 10 Ways to Lawsuit Proof Your Estate

Ainer & Fraker, LLP Analysis The issue of disinheriting a son or daughter is an issue that requires a lot of thought and care. As stated in the article – the Disinheritance must be Intentional or the Probate Court will conclude that you didn’t really mean to disinherit your child. California’s Pretermitted Heir Statutes, found in California Probate Code Sections 21620-21623, state that, in order for the disinheritance to be effective:

The decedent’s failure to provide for the child in the decedent’s testamentary instruments was intentional and that intention appears from the testamentary instruments. (Section 21621)

This means that the same document that disinherits a child must make it clear that the disinheritance was intentional. Failure to meet this or other statutory criteria, the Court will rule that:

The omitted child shall receive a share in the decedent’ s estate equal in value to that which the child would have received if the decedent had died without having executed any testamentary instrument. (Section 21620)

In other words:  to disinherit a child, you have to (1) mean it and (2) say that you mean it in the testamentary documents. For these reasons, competent legal counsel should always be consulted before attempting to disinherit a child.

10 Ways To Lawsuit-Proof Your Estate #9

FORBES Magazine online blog, The Best Revenge – by Ashlea Ebeling, has an excellent article called 10 Ways to Lawsuit Proof Your Estate that covers a lot of the advice that we at Ainer & Fraker, LLP give to our clients.

Please read the entire article by clicking on the following link: 10 Ways to Lawsuit-Proof Your Estate.

Today, we’ll examine Part 9 – Include a “no contest” clause

“No contest clauses, also known as “in terrorem” clauses are generally valid and are an effective tool in preventing estate fights, especially if there is intrigue to start. A typical clause says that if any beneficiary of the will contests the validity of the will or any provision of the will, he of she forfeits his interest. You must leave something of value to the folks you expect to stir up trouble to make it work.”

~ Ashlea Ebeling, 10 Ways to Lawsuit Proof Your Estate

Ainer & Fraker, LLP Analysis

No Contest Clauses can be very effective in deterring an estate fight, but they must be used with caution.

In some cases, they can be used to cut both ways – helping someone take money from an estate improperly.

In one estate we are familiar with, a distant relative of Mom & Dad convinced Mom & Dad to leave 80% of the estate to them, instead of to son.  Son and Grandchildren were left only 20% of the Estate.

Son believed that this was a result of undue influence, but risked triggering the No Contest Clause if he did not prevail.

Due to recent changes in the No Contest Clause law in California, the bar to successfully challenge based on undue influence (or other direct contests) has been raised.

California’s No Contest Clause, found in Probate Code Section 21310-21315, makes it very difficult to file a direct contest without “probable cause.

Typical of the Legislature, no precise definition of Probable Cause is provided in the Probate Code.

Absent clear guidance from the Courts, it remains difficult to determine which challenges will be found to trigger a No Contest Clause, and which will not.

Competent legal counsel should always be consulted before considering the use of No Contest Clauses in Estate Planning.

10 Ways To Lawsuit-Proof Your Estate #8

FORBES Magazine online blog, The Best Revenge – by Ashlea Ebeling, has an excellent article called 10 Ways to Lawsuit Proof Your Estate that covers a lot of the advice that we at Ainer & Fraker, LLP give to our clients.

Please read the entire article by clicking on the following link: 10 Ways to Lawsuit-Proof Your Estate.

Today, we’ll examine Part 8 – Establish you’re of sound mind

One of the most common allegations in estate litigation is that the testator lacked the mental capacity to sign his will. One way to counter this claim, particularly if you’re getting up there in years: Get evaluated by both a treating physician and a geriatric psychiatrist immediately before signing the documents.

~ Ashlea Ebeling, 10 Ways to Lawsuit Proof Your Estate

Ainer & Fraker, LLP Analysis

Unfortunately, the fastest growing area in the field of Estate Planning is Litigation: Litigation between beneficiaries and Trustees; Litigation between Beneficiaries and each other; all manner of Will Contests designed to swing the advantage of the legal process in one’s favor.

While we agree with some of the analysis in this article, we always have clients assess the realistic chances of a dispute over the estate before advising them on capacity declarations.

Obviously, if the family gets along extremely well, or there is little to fight over, then extreme measures to document capacity may be overkill.

However, in our combined two decades of experience with Probate Litigation and Will Contests, we can flatly state – when in doubt, assume there will be a Contest.

We have seen numerous cases where everything appeared straightforward, and family members appeared to be free of disagreements, until Mom and Dad died.

Then, a family member (usually one with financial difficulties of their own) see an advantage to be gained by filing a contest.

If a challenge is likely, then a Capacity Declaration should be sought  immediately before and after the signing of the Documents.  Also, more than one doctor should be sought, often from different medical practices.

We have seen one case where the client had been evaluated by a court-recognized expert on incapacity, only to have the same court choose to believe another physician’s report instead.

The more likely there is to be a contest, the more you should approach it with a “belt and suspenders” approach.

10 Ways to Lawsuit-Proof Your Estate #7

FORBES Magazine online blog, The Best Revenge – by Ashlea Ebeling, has an excellent article called 10 Ways to Lawsuit Proof Your Estate that covers a lot of the advice that we at Ainer & Fraker, LLP give to our clients.

Please read the entire article by clicking on the following link: 10 Ways to Lawsuit-Proof Your Estate.

Today, we examine Part 7 – Consider a corporate executor

If you have modest assets and don’t anticipate family fights, you’ll probably want to name your spouse, and alternatively an adult child, to be executor of your estate.  If you anticipate problems, don’t do this. Putting a favored child in the driver’s seat is a set up for abuse of power or the perception of abuse, which can lead to litigation. A corporate executor (say a bank) is expensive, but there’s less chance of fights among siblings.

~ Ashlea Ebeling, 10 Ways to Lawsuit Proof Your Estate

Ainer & Fraker, LLP Analysis

We regularly advise our clients to consider using a corporate or professional Trustee, to manage their Trust after they are gone.

In addition to reducing the likelihood of family friction, a professional Trustee can manage the individual shares of a beneficiary for many years (if necessary).  Rarely do family members enjoy managing a Trust for several decades, until the youngest child reaches their twenties or thirties.

Here are some of the questions our clients raise with us when considering a Professional Trustee:

1) Do we have to choose a Bank?  The short answer is No.  While a Bank Trust Department or other Corporate Trustee provides valuable services to their clients, they are not the only game in town.  In California, we have the Professional Fiduciary Association of California, whose members are known as Professional Fiduciaries.  They are independently licensed, insured and bonded, and provide many of the same services as a Bank Trustee, and sometimes more.

2) How Much will it Cost? In general, a Trustee can charge a “Reasonable” fee, based on the complexity of the matter and the skill set of the Trustee.  A Bank or Corporate Trustee generally charges a percentage of Assets Under Management (AUM), which typically can range from 1-2% annually.  A Professional Fiduciary will charge an hourly rate, so they tend to be less expensive if the administration is relatively simple.

3) Will we Lose Control of Our Money?  Again, the answer is No.  While the Trustee has legal control, the California Probate Code imposes a wide array of duties and obligations, to ensure that the Trustee is responsive to the needs of the Beneficiaries.  In addition, a Professional Trustee can be removed if they are not doing the right job, or if the beneficiaries agree it’s time for a change.

4) Is Our Money Safe with a Professional Trustee?  We hear this one all the time, and it never ceases to amaze us.  Corporate or Professional Trustees exist to serve their clients – you.  They are licensed, insured, bonded and highly regulated.  If they are found guilty of a breach of their duties, they can be sanctioned.  If they cause a loss of Trust corpus due to mismanagement, their insurance and bond protects your family from loss.  If a family member Trustee runs off with the money, it’s almost never coming back.  You can sue them, but if it’s gone, it’s gone.

10 Ways to Lawsuit-Proof Your Estate #6

FORBES Magazine online blog, The Best Revenge – by Ashlea Ebeling, has an excellent article called 10 Ways to Lawsuit Proof Your Estate that covers a lot of the advice that we at Ainer & Fraker, LLP give to our clients.

Please read the entire article by clicking on the following link: 10 Ways to Lawsuit-Proof Your Estate.

Today, we examine Part 6 – Get your own lawyer

It’s common for one lawyer to do the estate planning documents for a couple and perhaps even more family members. But if the lawyer represents someone other than the testator (the person writing the will), trouble can result. Say the law[yer] represents both the testator and a second spouse—children from a first marriage could cry foul and say that the lawyer was doing the secret bidding of the second spouse and not what their own deceased mom or dad wanted.

~ Ashlea Ebeling, 10 Ways to Lawsuit Proof Your Estate

Ainer & Fraker, LLP Analysis

Carefully defining who is the client is one of the most important tasks of any estate planning attorney.

It may seem simple at first, but many times circumstances change during the course of the representation – or in the life of the family – making it difficult to ascertain who truly must be represented by the attorney.

Consider the following circumstance:  Mother and Father are in their late 70’s, but have full mental capacity to execute legal documents.  Because they are living on fixed income, Oldest Child pays the attorney for an estate plan.

Mom and Dad are fine with Oldest Child serving as Trustee and Executor.  However, once Mom and Dad begin to show signs of dementia, Younger Siblings challenge the decision to have Oldest Child serve as Trustee.

It is common in many cases for the drafting attorney to continue representing Trustee, since that was Mom and Dad’s wishes.   However, if there is a conflict between the children as Beneficiaries, the drafting attorney may become disqualified due to the Conflict of Interest.

Also common is the Conflict of Interest that arises from blended families.

Husband and Wife are married for 20 years before Wife dies.  Husband remarries Second Wife and they remain married for another 10 years before Husband dies.

Husband had sought to leave his part of the Estate to his children, but wanted Second Wife to be his Trustee and Executor.

In this case, the original drafting attorney will find it difficult to avoid a Conflict of Interest, because the needs of his Clients (Husband and Second Wife) are very different.

If not managed carefully, these types of representations can lead to family friction and potentially litigation.

Careful determination of “who is the client”, combined with the appropriate Conflict Waivers, are required if the client seeks joint representation in a case like this.

Better yet, each spouse should ideally have their own independent counsel, to avoid litigation down the road.

 

10 Ways to Lawsuit-Proof Your Estate #5

FORBES Magazine online blog, The Best Revenge – by Ashlea Ebeling, has an excellent article called 10 Ways to Lawsuit Proof Your Estate that covers a lot of the advice that we at Ainer & Fraker, LLP give to our clients.

Please read the entire article by clicking on the following link: 10 Ways to Lawsuit-Proof Your Estate.

Today, we examine Part 5 – Check ownership of what you leave

This sounds ridiculous, but make sure you own what you’re planning to leave to your heirs…With jointly owned property, the joint owner gets it…If you put your vacation condo in corporate name and the shares are to go into a trust, it doesn’t matter that you say in your will that you want your daughter to get it.

~ Ashlea Ebeling, 10 Ways to Lawsuit Proof Your Estate

Ainer & Fraker, LLP Analysis

One of the most common misconceptions in Estate Planning is that your Living Trust (or Will) will always determine “who gets what.”

However, a Living Trust only controls what is actually in the Trust.

If you never fund an asset to the Trust, the Trust will not determine who gets that asset.

As the article indicates, Joint Tenancy assets go to the surviving Joint Tenant, not through a Trust or Will, which is one of the major problems with Joint Tenancy.

We were involved in a litigation matter where the Father had created a Trust leaving the bulk of his estate to the children of the first marriage.

However, when he died, it was discovered that all properties were held in Joint Tenancy with his second wife.

The children were originally told they got nothing because these assets were never funded to the Trust.

In addition to property owned in Joint Tenancy, there are a number of assets that are not ordinarily subject to Probate – including assets that pass by operation of contract, such as an IRA or 401(k) or Life Insurance or Annuity.

For these assets, a Will is powerless over them, because they pass directly to the beneficiary named on the account form.

This is why it is never enough to create a Living Trust, you must make sure that  your assets are funded to the Trust.

10 Ways to Lawsuit-Proof Your Estate #4

FORBES Magazine online blog, The Best Revenge – by Ashlea Ebeling, has an excellent article called 10 Ways to Lawsuit Proof Your Estate that covers a lot of the advice that we at Ainer & Fraker, LLP give to our clients.

Please read the entire article by clicking on the following link: 10 Ways to Lawsuit-Proof Your Estate.

Today, we examine Part 4 – Transfer a Business with a Contract

Suppose you have a house, $2 million in investments and a coveted family business you want your oldest child to have even though you think everybody else will be ticked off. Consider entering into a contract while you’re alive selling the business to that child, instead of including it as a specific bequest in your will or trust.

~ Ashlea Ebeling, 10 Ways to Lawsuit Proof Your Estate

Ainer & Fraker, LLP Analysis

While the basic advice in Part 4 is sound, it does not come close to eliminating the sources of family friction as it relates to the family business.

While it is harder to contest the lifetime sale of a business than it is to contest a bequest or devise – the real challenge is how to equalize the inheritance to all children, whether they work in the family business or not.

As it was discussed in Part 1 – Treat Siblings Equally – litigation and family friction can be largely avoided when all children are treated equally.

However, when it comes to a family business, even isn’t equal, and equal isn’t even.

If one child has been working in the family business, while others have been pursuing their own passions, it is only right to hand the business over to the child who has invested their life in the long term success of the family business.

However, if the family business is the majority of the family’s net worth, then how can the other children receive an equal inheritance?

Consider using life insurance to save the family business.

If you establish a buy-sell agreement – and fund it with life insurance – you can give company stock to the child who wants it, and cash to those who would prefer cash.

Everybody wins:

  1. The company is wholly owned by the child who can ensure it’s success
  2. The Child who works in the business has total voting control
  3. The Children who don’t want to work in the business aren’t tied to it for money

The Family Business is saved – and Family Harmony is preserved – for the cost of the insurance premium.